In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

Archives: 11/2012

The Sixth Circuit’s sharply split decision reads like something out of Orwell (or The Onion): Michiganders’ decision to amend their state constitution to outlaw racial preferences in college admissions somehow violates the Fourteenth Amendment’s Equal Protection Clause. As Dave Barry would say, I’m not making this up: The court voted 8-7 that making people more equal under the law violates the constitutional provision that requires people to be treated equally under the law!

Fortunately, this crazy ruling will not long survive. The California-based Ninth Circuit has (remarkably) ruled the other way; conflict between the lower courts virtually ensures that the Supreme Court will take the case.

And don’t forget that the Court this term is already considering the propriety of racial preferences in UT-Austin’s admissions program. If the Court finds racial preferences themselves to be unconstitutional—that’s my view—then the Sixth Circuit’s ruling has no practical effect anyway.

It has been said of the neo-cons that they are often wrong but never in doubt. Well, Bill Kristol was at it again, predicting the future with his usual air of supreme confidence. According to the neo-conservative editor of the Weekly Standard, “It won’t kill the country if Republicans raise taxes a little bit on millionaires… .The Republican Party is gonna fall on its sword to defend a bunch of millionaires, half of whom voted Democratic, and half of whom live in Hollywood and are hostile to Republicans.”

The left has jumped on Kristol’s words. As Andrew Rosenthal wrote in the New York Times, “When even Bill Kristol, the severely conservative Weekly Standard editor, says Republicans should agree to raise taxes on the richest Americans, you have to wonder if the G.O.P. has thought through its post-election, hold-the-line strategy.”

To start with, Kristol misunderstands the opponents of the tax increases on the rich, whose main goal is not to ensure that the rich get to keep more of their money. Their main goal is to prevent the federal government from obtaining a new source of revenue. Why might that be?

Tax increases can be immediate, but spending cuts must be spread over many years. That provides politicians with plenty of opportunities to change their minds on spending (i.e.: vote for me and I will increase funding for your program). Contemporary Western Europe provides a perfect example of this phenomenon. In the wake of the 2008 crisis, Western European countries have introduced substantial tax increases that, in my humble opinion, are the primary reason for Europe’s double-dip recession.

Their spending has either continued to grow in both nominal and real terms (Britain, France, Portugal, and Spain) or flat lined (Italy). Only in the already bankrupt Greece did both types of spending decline. In all likelihood, a bipartisan deal on taxes in Washington would result in higher taxes, more spending and, in time, higher deficits.

Throughout the early 2000s, Bill Kristol and the Weekly Standard have largely ignored President G.W. Bush’s orgy of new spending that discredited the GOP in the eyes of many fiscal conservatives. He does not speak for conservatives in general and small government advocates in particular.

The fiscal cliff is looming and Washington is scrambling to reach a deal to avoid a Thelma and Louise ending in January. To start, policymakers need to identify spending cuts, and they could begin with Senator Tom Coburn’s (R-OK) just-released report on wasteful and duplicative spending in the Pentagon. The report identifies savings totaling at least $67.9 billion over the next decade in the Department of Defense. The common thread linking these disparate recommendations—from axing non-military research and development projects ($6 billion) to eliminating Pentagon-operated grocery stores ($9 billion)—is that the expenditures “have little to do with national security” and therefore could be implemented “without impacting our national security.” “Many of these programs, initiatives or research projects,” the report explains:

may serve worthy interests, but should not be the job of our military tasked with fighting and winning the nation’s wars.

Unfortunately this mission creep has essentially transformed the Department of Defense into the Department of Everything.

The five missions examined by this report—research and development, education, alternative energy, grocery stores, and support and supply services—could be or already are being better delivered by more appropriate federal agencies or departments, civilian federal employees, or even the private sector. (Emphasis in original.)

Sen. Coburn is to be commended for his willingness to take on the self-proclaimed defenders of defense, those men and women who aver that the Pentagon’s $600+ billion budget is sacrosanct, and who have rushed to the ramparts with the cry of “not a penny more out of defense.”

And this is not the first time that Coburn has stepped forward with specific recommendations for spending cuts. In July 2011, his “Back in Black” plan identified $9 trillion in savings and deficit reduction, including $1 trillion from the Pentagon’s budget.

Combined with a number of other recent studies—including by Taxpayers for Common Sense, which identified $2 trillion in deficit reduction, including $672.5 billion from “national security”; and the Project on Defense Alternatives (PDA), which just yesterday put forward specific recommendations for Pentagon cuts totaling more than $550 billion—Coburn’s latest provides ammunition to those taxpayer advocates who are calling for serious spending cuts. More importantly, it should strike fear in the hearts of those faux conservatives who are urging Republicans to preemptively surrender to President Obama’s demand for higher taxes (Exhibit 1; Exhibit 2; and Exhibit 3) in order to keep the spigot open to defense contractors.

I have praised Sen. Coburn before, including here and here, but I will confess to being disappointed that this report doesn’t go far enough. According to the PDA study mentioned above, President Obama’s latest 10-year plan calls for Americans to spend $5.757 trillion on the Pentagon. Against that baseline, Coburn’s sensible reforms would save a mere 1 percent.

Coburn explains that he wants to “refocus the Pentagon to its true mission: fighting and winning the nation’s wars.” That is a noble goal. But none of the recommendations in this latest report address the aspects of the Pentagon’s budget that goes to fighting other nations’ wars. Coburn boasts that his plan doesn’t cut “any Army brigade combat teams, Navy combat ships, or Air Force fighter squadrons.” A truly transformational plan would.

Coming to grips with our bloated defense budget begins with a clearer understanding of what is meant by the “common defense.” To the Founders of the Republic, and to the vast majority of Americans today, it means defending us, these United States, our citizens, and our interests. The bipartisan consensus in Washington believes something very different: that American taxpayers should be on the hook for defending other countries that can and should defend themselves. Until and unless that changes, we won’t be able to make significant in military spending without overstressing the force. A smaller military should have fewer missions.

All that said, Dr. Coburn’s courage and wisdom should be emulated by others who care about this country’s security—both fiscal and physical. And those who are the first to criticize this report will reveal themselves for what they are: mindless advocates of more spending, consequences be damned.

Attorney General Eric Holder is soon expected to announce the federal government’s response to the marijuana legalization initiatives recently approved in Colorado and Washington. For conservatives and GOP persons in the Congress, it is a time for choosing.

The first path is to turn against the federal drug war. Call it a correction–just as many have acknowledged the runaway spending errors during the Bush years. Recall that conservatives just took a principled stand against federal overreaching in the Obamacare legal fight. It would be a drastic mistake to shift ground now and start defending federal police raids. Clarence Thomas has the constitutional law right. And William F. Buckley and Milton Friedman were right on the policy side–legalization of drugs is the correct policy stance to take. The neocon approach championed by Bush administration alumni (William Bennett, John Walters, and Michael Gerson) has been profoundly misguided.

We’ve heard a lot about demographics in the election aftermath. Immigration has received most of the attention, but consider drug policy. Young people just don’t think marijuana users are “criminals.” Hispanic-Americans see the chaos in Mexico more clearly than average Americans. African-Americans bear the brunt of drug law stops, raids, arrests and incarceration. And let’s not forget that this policy debate is taking place in the context of a fiscal crisis. The GOP likes to think of itself as the party that is willing to tackle government policies that don’t work and have unintended consequences. One cannot talk seriously about criminal justice reform and corrections spending without addressing the drug war. It’s past time to end the federal war on drugs.

The second path is to champion the DEA and federal police powers. Flip-flop back to big government conservatism? From arguing that it’s a federal overreach to fine someone for not buying health insurance …to lock up that gal over there with a joint in her purse? Alienate the tea party folks and their small government movement? Alienate young voters and African-Americans with talk about how the government is helping everyone with increasing numbers of arrests? Alienate Hispanic-Americans and fiscal hawks with talk about another billion dollar aid package to the Mexican government to fight the drug war? Sounds like a foolish consistency with the past.

[T]here’s one easy ideological maneuver that Republicans could make that would simultaneously burnish their stance as the party of freedom and expand their base while alienating the president from his. It is a move that might also make one swing state a little easier to win in 2016. Congressional Republicans and conservative leaders could get on the weed bandwagon.

Hear, hear. Some on the religious right–Pat Robertson–are already on that bandwagon.

Some may ask, “Isn’t there some sorta middle position between legalization and stay-the-course-drug war policy?” Yes–that position is this: “I am not sure about Colorado and Washington are doing, but that’s their prerogative in our federal system.”

To paraphrase Ronald Reagan, no one is saying the choices are going to be easy, but the policy choices are fairly simple.

The Atlantic’s Conor Friedersdorf gives us a disturbing glimpse of what American schoolchildren are being taught about the War on Terror, in the form of excerpts from a widely-used high school history textbook. The whole piece is a disturbing catalog of hilarious propaganda presented as fact to kids who are increasingly too young to remember much about the immediate aftermath the 9/11 attacks, but I figured I’d focus on the paragraph dealing with the Patriot Act, which manages to get a truly impressive number of things wrong in a short space.

The President also asked Congress to pass legislation to help law enforcement agencies track down terrorist suspects. Drafting the legislation took time. Congress had to balance Americans’ Fourth Amendment protections against unreasonable search and seizure with the need to increase security.

I suppose in some strict sense all events “take time,” but this is a very strange way to describe a 342-page piece of legislation amending more than 15 complex federal statutes, the first version of which was introduced on October 2, and which had been signed into law by October 26. The reason it could be done done so quickly, of course, was that most of the reforms in the bill had long been on the intelligence community’s wish list, and were waiting in a desk drawer for an opportune moment. Last minute substitutions of the draft language meant that few if any legislators had actually read the law they ultimately passed, which makes it hard to argue with a straight face that they were seriously engaged in “balancing” anything.

President Bush signed the new antiterrorist bill - known as the USA Patriot Act - into law in October 2001. The new law allowed secret searches to avoid tipping off suspects in terrorism cases.

Well, that was the sales pitch, anyway. In reality, the FBI already had authority under the Foreign Intelligence Surveillance Act to conduct covert searches in counterterrorism investigations. It should have come as no surprise, then, that this expanded “sneak and peak” authority was almost never used for terrorism cases. In 2008, government investigators sought 763 “sneak and peak” warrants, of which exactly three involved terrorism. The vast majority—65 percent—were drug cases.

It also allowed authorities to obtain a single nationwide search warrant that could be used anywhere. The law also made it easier to wiretap suspects, and it allowed authorities to track e-mail and seize voicemail.

This is a bit weird, because one of the few things the Patriot Act didn’t do was substantially alter the standards for obtaining a wiretap—except that looser FISA warrants could now be obtained in cases where a “significant” rather than “primary” purpose was to acquire foreign intelligence information. The Bush Administration did consider asking Congress to expand wiretap authority, but fearing refusal, decided to simply ignore the law and order the National Security Agency to launch its now-infamous program of warrantless wiretaps. The wording here also, somewhat bizarrely, implies that authorities had no ability to track email or seize voicemail until late 2001. It would be more accurate to say that the act lowered the standard police had to meet to obtain voicemail somewhat, and clarified that certain surveillance tools initially designed for telephone networks could also be used for digital communications, which was more a codification of existing practice than a real change.

Meanwhile, some of the most controversial elements of the Patriot Act go unmentioned. Nothing about “John Doe” roving wiretaps. Nothing about the incredible expansion of National Security Letter authorities. Nothing about Section 215 “tangible thing” orders. It sounds so benign that you’d wonder why anyone was ever opposed to the legislation—except there’s nothing any of the passages Friedersdorf quotes to indicate that anyone did oppose it. I guess Congress did such a good and careful job “balancing” privacy and security that everyone applauded the wise president’s efforts to help track down terrorists.

To borrow the former president’s famous query: Is our children learning? Maybe—but they don’t seem to be learning much that will prepare them to be critical thinkers about security policy, or good stewards of cherished liberties.

Since their failure in 2008, I’ve been advocating that Fannie Mae and Freddie Mac be placed in receivership, which is essentially an administrative bankruptcy. In what is an otherwise wonderful read, James Hagerty repeats in his new book (see pages 182-3) the myth that placing Fannie and Freddie into receivership would end those companies. As he writes:

Under receivership, the main providers of funding for home mortgages would be going out of business at a time when private money for mortgages had dried up.” He continues, “The Bush administration would have to explain how it was going to make sure mortgage lending would continue without Fannie and Freddie.

Few journalists have as deep an understanding of Fannie and Freddie as Hagerty. But I worked on the receivership language (Section 1145) in the Housing and Economic Recovery Act of 2008 (HERA) while staff on Senate Banking Committee, and I think his read of its powers are incorrect.

First, under a receivership, the GSEs can continue to be run – that is, the regulator, FHFA, can still issue debt, buy mortgages and do everything else the GSEs currently do. Skeptical? Well, here’s the law:

Section 1367(b)(B) Operate the regulated entity.–The Agency may, as conservator or receiver– “(i) take over the assets of and operate the regulated entity with all the powers of the shareholders, the directors, and the officers of the regulated entity and conduct all business of the regulated entity; “(ii) collect all obligations and money due the regulated entity; “(iii) perform all functions of the regulated entity in the name of the regulated entity which are consistent with the appointment as conservator or receiver; “(iv) preserve and conserve the assets and property of the regulated entity; and “(v) provide by contract for assistance in fulfilling any function, activity, action, or duty of the Agency as conservator or receiver.”

Also the law prohibits FHFA from ending the charters:

HERA 1145 (Section 1367(k) of 1992 Act) “Prohibition of Charter Revocation.–In no case may the receiver appointed pursuant to this section revoke, annul, or terminate the charter of an enterprise.”.

The law is quite clear. FHFA would continue to run the GSEs, with the option of a good/bad bank model to resolve bad assets, and the only way FHFA can terminate the receivership is to sell the charters back into the marketplace (see Section 1367(i)(6)(C) “Termination of status as limited-life regulated entity”).

So let’s get the facts straight. Receivership would not end the GSEs. The fundamental difference between receivership and the current conservatorship is the ability to impose losses on creditors. The sole reason that Paulson and crew chose conservatorship was to protect the debt-holders and stick the taxpayer with the tab. There were options to do otherwise. Which is of course the primary reason I am skeptical of Dodd-Frank: we had the “tools” to protect the taxpayer from GSE losses, yet chose not to use them. Why should we believe we’d use them for Citibank if we didn’t for Fannie Mae?

That’s the title of a new paper that Carl DeNigris and I just published in the Drake Law Review. Here’s the abstract:

Economic freedom is the best tool man has ever had in the perpetual struggle against poverty. It allows every individual to employ their faculties to a multitude of opportunities, and it has fueled the economic growth that has lifted millions out of poverty in the last century alone. Moreover, it provides a path for individuals and communities to free themselves from coercive government policies that serve political elites and discrete political classes at the expense of the politically weak. Because of their relative political weakness, the poor and lower middle class tend to suffer the most from these inescapable power disparities.

Yet economic freedom — and ultimately, economic growth — is not self-sustaining. This tool of prosperity requires sound principles that provide a framework for cooperation and voluntary exchanges in a free society. Principles equally applied to all and beyond the arbitrary discretion of government actors; principles that provide a degree of certainty and predictability in an otherwise uncertain world. That is, economic freedom requires the rule of law, not men.

In this article, we discuss the corrosive effects that unconstitutional actions have on the rule of law, economic growth and, in turn, on the ability of the poor to improve their economic misfortune. We focus on the institutional dangers and adverse incentives that unconstitutional policies tend to create. These dangers are not just abstract or theoretical; this article shows how specific unconstitutional actions adversely affect the lives of poor Americans. And while Part IV shows that even constitutional violations by local governments can have disastrous effects, our central theme is that the federal government’s disregard for the U.S. Constitution has led to policies that kill jobs, stymie economic growth, and ultimately exacerbate the problems of those living in poverty.

The case studies we use to illustrate our argument are Obamacare, bailouts/crony capitalism, the Sarbanes-Oxley/Dodd-Frank financial regulations, and housing policy. It’s truly stunning to see how the policies that the government pursues – unconstitutional ones at that – hurt the very people they’re designed to help. Read the whole thing.